Why First Solar is buying a silicon solar cell startup no one’s heard of

First Solar (s FSLR) is buying an under-the-radar startup called TetraSun to add expertise around silicon solar cell manufacturing to its technology portfolio, which until now has focused on using the material cadmium telluride to make solar cells.

The Arizona-based thin film solar giant announced the pending acquisition on Tuesday during its analyst day — its first since 2009 — in which it laid out a persuasive technology and business development plan for the next five years. Investors liked what they heard and pushed the company’s stock up by nearly 50 percent during trading.

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Courtesy of Southern California Edison

The announcement also came after the company’s top executives spent the entire day taking shots at silicon solar technology, which they said hasn’t been able to make a big leap in its sunlight-to-electricity conversion rate for years and is approaching the theoretical limit of its efficiency. First Solar’s bread and butter cadmium telluride, on the other hand, has a higher theoretical efficiency limit, and First Solar has shifted its businesses focus from building large factories to make panels with cadmium-telluride cells to developing more efficient panels, said CEO Jim Hughes during the event.

Who is TetraSun?

So why TetraSun? Apparently Silicon Valley-based TetraSun has some disruptive silicon cell designs that set it apart from the rest of the silicon solar companies. Its designs require fewer manufacturing steps to produce conventional silicon cells, and eliminates the need for silver and transparent conductive oxide. Silver is used to transport electricity produced by the cells, while the oxide is a coating that protects the cells and helps the semiconductor material (such as silicon or cadmium telluride) to grab the light more effectively to produce electricity.

First Solar claims that TetraSun’s cells also can perform better in hot climates than conventional silicon cells. That feature will make solar panels with TetraSun’s cells more desirable in places like the Middle East and India, two markets with a lot of potentials for growth. First Solar says it plans to start making TetraSun’s cells in the second half of 2014.

First Solar believes TetraSun’s technology could produce cells at an over 21 percent efficiency at a cost that is comparable to the expense of making conventional — yet less efficient– silicon solar cells. Most silicon cells today have efficiencies in the mid-teens. SunPower (s SPWR) stands out in its ability to make silicon cells at nearly 23 percent, but the company uses a more expensive type of silicon and has its own special cell designs to achieve that high efficiency. First Solar didn’t specify what type of silicon TetraSun has used.

TetraSun has been quiet about its technology development, and its website is just a landing page. Its name did show up as a recipient of a U.S. Department of Energy grant, announced back in January 2010.

First Solar is buying TetraSun from JX Nippon Oil & Energy Corp. and other investors, and it expects to complete the acquisition in the second quarter of 2013. It’s not disclosing the price for the acquisition.

First Solar also talking to JX Nippon about selling solar panels with TetraSun’s cells in Japan, which has become a hot market since the Fukushima nuclear power plant disaster in March 2011 prompted the government to offer generous subsidies for renewable energy generation.

An efficiency play

First Solar previously used its manufacturing scale and efficient production process to roll out solar panels more quickly than its competitors. That enabled First Solar to sell its panels at a much lower price even though the panels weren’t as efficient. But the plummeting prices for silicon, which is used in the majority of the solar panels made today, has eroded that pricing advantage for First Solar and prompted the company to focus on improving its solar panels’ efficiency. More efficient solar panels could fetch higher prices because they allow developers to build a same-size power plant with less land.

But First Solar apparently doesn’t want to rely on just one semiconductor material for its solar panels. It once worked on developing solar panels with copper, indium, gallium and selenium (CIGS), but it scrapped that program over a year ago. Supposedly the decision to ditch that effort came partly because First Solar was posting losses and looking for ways to cut costs. The company’s chief technology officer, Raffi Garabedian, told analysts on Tuesday that CIGS technology has taken the most private and public funding, yet it still isn’t likely be able to deliver the big efficiency improvements that cadmium telluride can over time.

The share price has been on really climbing in the last year. With a forward P/E of 12, it is not at all over priced at $40. I have been following this stock for a long time, and finally bought a few shares when it dipped to below $15 last May. I may sell @ $100 or so, or maybe not …

It’s not true that “most silicon cells have efficiencies in the mid-teens”. Do some research before writing such things. I think you’ll find most cells closer to high teens or twenty percent efficient.

The market has much more multi-crystalline solar cells than mono, and multi c-si cells do spread in the middle of the 10-20% range. I’m not talking about champion cells or the “up to 20%” cells that some companies have in their marketing materials.